At Consolidated Water Supply Corp. Following The Money Leads To Allegations Of Mismanagement

By Alton Porter
Courier Reporter
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Three customers of Consolidated Water Supply Corporation (CWSC) say research they've conducted reveals what appears to be patterns of impropriety and mismanagement at the corporation. And they want corrective action – including the firing of General Manager Sherry Reed – to be taken.

The three customers – Kim Spellman, Kevin Holbrook and Kirk Brenner – whose status as customers also make them members of the corporation, aired their complaints through Spellman in an interview with the Courier on Monday, Nov. 21.

They had presented their case to CWSC's board of directors at a board meeting on Nov. 9.
Asked what their main complaint with CWSC is, Spellman said, as she gave the Courier copies of documents she distributed to CWSC's board members at the meeting, "The biggest complaint is something is going on with our retirement fund, which is where I think a lot of money is going out – like the matching contributions.

"There's really no tangible evidence that there was approval by the board anywhere to increase the retirement matching. And then, when you look at the chemistry of the DNA of the demographics of the employees that work there, most of them are related. That's not a big thing in Crockett because all of us are almost related, right. It's what happens in Small Town, USA.

"But, when you think about doubling and tripling our retirement plan match for your brother-in-law, your sister-in-law and your niece, to the tune of 13 years at double what it should have been, and you had no approval to do that from the board of directors as your governing body, that feels like you're lining your own pockets."

Spellman added, "So, I'm not an investigator, but I am a bulldog. So, you've kind of got to look at these things. So, (we have) two complaints: Something's going on with the money – mainly here in retirement (fund). Next complaint: overtime."

Spellman and Brenner noted that when they looked at year-to-year increases in income, salaries increased 19 percent over (one) three-month period.

Spellman said excessive amounts of overtime pay went "mainly to relatives. But, again, there are only about 21 employees at Consolidated Water. Most of them are related to the general manager. People talk about nepotism. There wasn't a nepotism policy (at CWSC), but there is now as of about 18 months ago."

She said their research shows 23 employees have received $164,253 in overtime compensation so far in 2016. Those figures were $195,063 for 27 employees last year and $145,958 for 21 employees in 2014.

Moreover, their search revealed that 57 percent of overtime pay has gone to 10 employees who are kin to each other so far this year. Those figures were 63 percent to 10 employees in 2015 and 58 percent to 9 employees in 2014.

"On average, a family employee received 586 OT hours versus 316 OT hours for a non-family employee," Spellman noted in one of the documents.

"So, chief complaint: mismanagement," Spellman said during her interview with the Courier, adding, "Now, what leader structures an organization built around a family tree for a non-profit organization, and then upticks the retirement policy to be double and triple? They don't. Not in a non-profit organization.

"The chief complaint there (also is) overtime. And then, there are some (other) issues. I'll tell you, as being a businesswoman and being a leader throughout my career, when I listen, for the first time – and (Wednesday, Nov. 9) was the first time I had ever gone to a board meeting – I was quite surprised of the general manager's business presentation of the status and state of the non-profit corporation.

"There just wasn't really preparedness. So, I feel like mismanagement is a huge issue. And the only people that can address that (is the board) because in the Policies and Procedures Handbook, it clearly states the general manager is responsible for running the business. And the governing body, which is the board of directors, is responsible for ensuring that the general manager is aligned and running the business in an appropriate manner. So, that's our point there."

Spellman said, "I asked some very specific questions to the board." Those questions include: "What are the elements of the (retirement) plan, (including) contribution limits, matching limits (and) timing of match? Was the change to the plan approved by the board? If so, when and where is that documented? Why was an insurance claim filed? What is the status of the claim? Has the provider offered settlement conditions?"

Three other questions regarding alleged "mismanagement" were: "Why is there so much overtime? What is the policy regarding nepotism? What specific processes have been instituted based on member feedback regarding harassment, lack of operational standards and misalignment of pricing practices?"

Spellman said CWSC officials have only answered her question about nepotism, informing her to her satisfaction that a policy addressing this matter was enacted by the board 18 months ago.

She said she, Holbrook and Brenner have started a Facebook group addressing the issues they've raised with CWSC officials. "Kevin actually went out and had stated some things and was very dissatisfied with pricing that he was getting (from CWSC staff) on a project that he's got going," Spellman said about Holbrook.

"And I told him at that time, 'I love you like a brother. If there's deceit going on, I'll help you find that deceit. And if there's just misunderstanding, I'll help you clarify that. And if you're just nuts, I'm going to tell you, you're nuts and that you're barking up the wrong tree.'

"So, a week before the board meeting, I said, 'Give me everything you've got.' And I shut down in a room and went through everything. I didn't know what I was looking for, but this is what I found. So, that's the basis of this, and that's how this came into play."

She added, "And I really truly believe that you have to be objective when you look at things like this because quite frankly we're talking about peoples' jobs. And she's been in that job for a long, long time. I don't want any ill will to anyone. But, I certainly don't want someone misrepresenting a nonprofit organization of which I'm a member of and have been a member of for many, many years in a manner that's lining their own pocket.

"If it's a for-profit organization, then okay. Those are the rules. But, it clearly states in their bylaws, in their articles of incorporation, in the meeting minutes that this is nonprofit. And these are not things you would expect out of a nonprofit."

CWSC information sources Spellman, Holbrook and Brenner researched included the Consolidated Shareholders-Public Facebook group, articles of incorporation, personnel policies and procedures, 2014-2016 payroll records, January 2014 to August 2016 board of directors meeting minutes, the Texas Rural Water Association 2016 Rate Study and correspondence with the Texas Public Utility Commission, she said.

From their research of the records, she said, one of the things they found was "that there are inconsistencies with the retirement plan." "For example, back in November 2015, there is a note that one of the board members made a motion to go back and renegotiate the retirement contract at the 2002 match rate – 13 years ago."

"Are you guys saying that you didn't approve a 10 percent match?" Spellman asked rhetorically. "I work for a Fortune 50 company. My 401(k) matching is four percent at best. It has never been more than six percent. And we've got in Crockett, Texas, our nonprofit organization with 21 employees – half of which are related – at 10 percent. That doesn't add up.

That was one of the findings. The overtime, again, was another finding. She said some CWSC employees have clocked more than 30 hours of overtime in a single week, and the corporation has paid about $500,000 in overtime compensation over a two-and-a-half-year period. "Just excessive, excessive overtime," she stressed.

"For example, an office worker that makes $25,000 a year, then, turns around and gets $20,000 a year in overtime," Spellman said. "That's pretty sweet. How does that happen? We aren't structured to do that kind of a payment from the cost of the workforce. It does not make sense."

She continued, "I don't know Sherry Reed. I do see the result of the leadership under her for however long she's been (general manager), which has been a long time. I also believe this board has somewhat set her up for failure because you've got to think about, what kind of development are they offering her? Is she just being reactionary, so that we're going to continue to have poor water quality, continue to pay exorbitant amounts of overtime and our rates will continue to be sky high and we don't have any foresight in our future?

Spellman said the response Holbrook received when he requested CWSC service on property he owns is what prompted the three of them to conduct their research and learn more about the corporation. Holbrook "reached out to get a water connection and wasn't satisfied with the price he got," she said, adding, he "felt like it was overpriced."

At an Aug. 9 CWSC board meeting, Holbrook expressed his dissatisfaction with a $7,828 quote Reed gave him to lay the 1,260 feet of two-inch PVC (polyvinyl chloride) pipe, install a meter and related costs to connect property he owns to the CWSC system.

Asked whether they anticipate taking legal action against Reed and CWSC, Spellman said, "I sure do. I'm like a dog with a bone, and I've got a bone. We want to talk with the Attorney General (of Texas). We want to talk with our state representative, Trent Ashby (R-Dist. 57). I've already reached out to him. We're going to have a meeting with him, as well." In addition, she said they plan to present their information to the Houston County District Attorney and staffers at the Texas Commission on Environmental Quality.

"I believe that there is foul play, but I'm not a forensic auditor. I am an executive with Hewlett Packard Enterprise. What I do for a living is analytics and data management. ... So, this fell right into my sweet spot. I think a forensic auditor looking at this information would say, 'Wow!'

"I sure hope there's no criminal action because that's even worse than losing a job. ... But, if there is, then, I would expect that our judicial system would handle it the way it should be handled. I hope there's not, but I think there is."

Asked what she's asking of CWSC officials, Spellman said, "I want them to take a really good look at the materials we presented and be real serious about them. And I want (the) ... board members to live up to the oath that they took when they ran for the board and they became elected by the membership to make sure that the general management of our nonprofit organization is run effectively and efficiently. And it's not happening.

"The thought process that we are Small Town, USA, and you can show up every second Tuesday of the month and sit around the big table and nod your head and look at journals and have someone say, 'Well yep, we paid $10,000 for this because we needed to and say okay.' Those days are gone. We're talking millions of dollars that we can't account for. That's some bad stuff. That's the situation that I believe that we're in based on the information that I have looked at."

She added, "Based on what I see, there's a lack of leadership in general management at Consolidated Water. And I believe it's time for change. And I believe that it's time for the board to identify a qualified, experienced general manager to run this nonprofit organization that services more than 15,000 people with 5,300 meters in 2016 and beyond. That's what my expectation is."

On a "call for action" page that was part of a document Spellman presented to the board at that Nov. 9 meeting, Spellman asked that board members to "Terminate the employment of the current General Manager."